Ruling costs nearly $1M

Wife of guilty broker "acted in bad faith," repayment order says

Updated 10:06 pm, Wednesday, March 20, 2013

Lynn Smith leaves the Federal Court House in Albany during a break in the SEC hearing on the Albany brokerage firm of McGinn, Smith & Co., Wedneday afternoon June 9, 2010. (John Carl D'Annibale / Times Union)

A U.S. appeals court has upheld a federal magistrate's nearly $1 million sanction against Lynn Smith, the wife of convicted broker David L. Smith, for concealing information in an effort to prevent the seizure of a $4 million family trust fund.

The U.S. Securities and Exchange Commission sought to use the money to repay hundreds of victims that the federal government said were defrauded by the brokerage founded by Lynn Smith's, husband, David, and his partner, Timothy M. McGinn. David Smith and McGinn were both convicted of fraud, conspiracy and tax evasion last month and are awaiting sentencing.

In the pending SEC case, which seeks to recoup any assets to help repay victims, Smith and his wife were accused of trying to shield assets from seizure. The sanction against Smith orders her to repay the trust $944,848 and also pay the SEC $51,232 to cover the agency's costs for pursuing the sanction.

Attorneys for Lynn Smith had convinced a federal judge the trust was off-limits from seizure because it was exclusively for the Smiths' two adult children.

But federal regulators then discovered a private annuity agreement — which they said had not been disclosed by the couple or their attorney and accountant — that called for David and Lynn Smith to receive annual payments of $489,000 from the trust beginning in 2015.

The SEC accused the group of fraud and misconduct and moved for sanctions, which Homer granted.

Lynn Smith, Dunn and Wojeski appealed the sanctions but a three-judge panel ruled this week it had no jurisdiction to review the sanctions against Dunn and Wojeski. The panel also sustained the sanction of Smith.

"Viewing the trust as a whole, it was undoubtedly created, at least in part, to benefit Lynn and David Smith because, as Lynn Smith acknowledges in her brief, it allowed them to defer capital gains taxes," the ruling states. "The court's finding that Lynn Smith acted in bad faith in not revealing her interest in the trust is amply supported by the record."

During a hearing in Albany Dunn and Wojeski both asserted that the Smiths had no interest in the trust. Likewise, Lynn Smith agave misleading testimony about the fact she and her husband would receive money from the trust.

Homer had accused Wojeski of making a false statement about his knowledge of the annuity agreement and characterized Lynn Smith's actions as "overwhelming evidence of deliberate concealment and misrepresentation."

Dunn was ordered to pay a federal receiver $5,355 that she received from the trust after learning of the annuity agreement and copies of Homer's decision were turned over to the state Committee on Professional Standards, which handles disciplinary matters for attorneys.

Wojeski was ordered to pay $13,894 to the receiver and a copy of the judge's decision was forwarded to the state Education Department, which licenses accountants.